Pimco: Pressure on the ECB to act will also be elevated near term.

Pimco: Pressure on the ECB to act will also be elevated near term.

July 21, 2022

Interest Rates ECB
ECB (5).png

Konstantin Veit, Portfolio Manager at PIMCO, comments on ECB's decision to raise interest rates.

'As expected, the ECB raised interest rates today for the first time in 11 years. Somewhat unexpectedly, the ECB decided to front-load the hiking cycle, ending 8 years of negative policy rates in the Euro area today.

The ECB hiked policy rates by 50 basis points and transitioned away from forward guidance on interest rates towards a meeting-by-meeting approach.

The ECB didn’t provide much guidance regarding the potential interest rate destination and plans to hike rates until medium term inflation stabilizes around target.

The ECB stressed that front-loading the hiking cycle doesn’t imply a higher terminal rate.

The anti-fragmentation backstop is light on details, and an ECB capping periphery country spreads at overly tight levels as policy normalization progresses remains unlikely.

While we can see the ECB eventually delivering less hikes then priced into the market based on a weaker growth outlook, Eurozone inflation over the rest of the year will remain high and pressure on the ECB to act will also be elevated near term.'

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